Target Corp. is sharply expanding its logistics footprint across the U.S. to build up capabilities to handle growing sales at both its physical stores and online.
The big-box retailer, following earnings growth in its past fiscal year that saw annual sales surge to more than $100 billion, said Tuesday it plans to build four regional distribution centers, adding to the two it opened last summer.
The Minneapolis-based company also is adding a network of sortation sites to speed goods through its supply chains.
Target’s strategy is part of an aggressive capital spending program aimed at strengthening delivery capabilities by largely focusing on making more efficient use of its warehouse network, while tapping the company’s nearly 2,000 stores to help fulfill e-commerce demand.
Target plans $4 billion to $5 billion in capital spending every year over the next few years, which would be an increase of more than 40% from last year.
Target’s network, which includes 49 distribution centers across 23 states, had remained largely the same for over a decade before 2021, even as the retailer added automation and adjusted warehouse designs to serve its growing business.
“Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period,” Chief Operating Officer John Mulligan said Tuesday during the company’s earnings conference call. With sales rising by $27 billion over the past two years, “It’s time to expand our network,” he said.
Target’s distribution centers, including two sites in New Jersey and Chicago added last year, replenish inventories at stores.
Ten new sortation centers, designed to supplement stores and make them more efficient, will arrange speedy online deliveries with help from last-mile delivery startup Shipt Inc., which Target acquired in 2017.
The sortation centers “help us further scale our stores-as-hub strategy and create room for future growth,” Mr. Mulligan said.
Target is running the first of those sortation centers in Minneapolis, where goods that had been set up for delivery at stores in the Minneapolis-St. Paul area now are collected, sorted and shipped out to consumers.
Target’s expansion comes as retailers are reshaping their logistics operations after their upheaval during the pandemic, as consumers rushed to order goods online and merchants scrambled to meet changing buying patterns.
That e-commerce growth appears to be receding as shoppers return to physical stores. Target’s digital sales for the year ending Jan. 29 rose 20.8%, compared with 144.7% growth for the same period a year earlier. Walmart Inc.’s e-commerce sales rose 1% year-over-year in the quarter ended Jan. 28, compared with a 69% jump in the same period a year earlier.
Target says its logistics expansion aims to build on the distribution strategy that has been in place since 2017.
“We knew using stores as hubs would give guests more choice and convenience, while giving our operation more flexibility and capacity for future growth,” Mr. Mulligan said during the earnings call. “That was true prior to 2020, and could not have been more essential since that time.”
Write to Lydia O’Neal at [email protected]
Corrections & Amplifications
Target Corp. has nearly 2,000 stores and its distribution strategy has been in place since 2017. An earlier version of this article incorrectly said it had more than 2,000 stores and that it undertook its distribution strategy during the pandemic. (Corrected on March 2)
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
